Exam
Name___________________________________

SHORT ANSWER.  Write the word or phrase that best completes each statement or answers the question. 

1) 

There are no questions in this section. 

1)  

_____________ 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

2) 

The simplest form of a business organization is a ________. 

2) 

_______ 

A) 

corporation 

B) 

proprietorship 

C) 

limited liability company 

D) 

partnership 

3) 

Which of the following is an example of a proprietorship? 

3) 

_______ 

A) 

Coca-Cola 

B) 

the United States Post Office 

C) 

a taxi driver 

D) 

the American Cancer Society 

4) 

Which of the following is an example of a proprietorship? 

4) 

_______ 

A) 

Hunter Construction, LLC 

B) 

the United States Post Office 

C) 

the owner of a local nail salon 

D) 

the American Cancer Society 

5) 

Which of the following is an example of a proprietorship? 

5) 

_______ 

A) 

FedEx 

B) 

a freelance photographer 

C) 

the American Heart Association 

D) 

Luxe Windows, LLC 

6) 

All of the following are true for a proprietorship except which one? 

6) 

_______ 

A) 

Profits are taxed only once. 

B) 

The government requires that it is registered. 

C) 

It exists only for the life of the owner. 

D) 

It is easy to organize. 

7) 

All of the following are true for a partnership except which one? 

7) 

_______ 

A) 

The government requires that it is registered. 

B) 

Profits are taxed only once. 

C) 

The owners have limited liability. 

D) 

It is owned by two or more people. 

8) 

All of the following are true for a partnership except which one? 

8) 

_______ 

A) 

The owners have unlimited liability. 

B) 

It is owned by two or more people. 

C) 

The government requires that it is registered. 

D) 

Profits are taxed twice. 

9) 

All of the following are true for a limited liability company except which one? 

9) 

_______ 

A) 

It exists for the lifetime of the owner. 

B) 

The government requires that it is registered. 

C) 

Profits are taxed only once. 

D) 

The owners have limited liability. 

10) 

All of the following are true for a corporation except which one? 

10) 

______ 

A) 

Profits are taxed only once. 

B) 

It has legal requirements in addition to registration. 

C) 

The owners have limited liability. 

D) 

It has perpetual life. 

11) 

Which of the following is an example of a limited liability company? 

11) 

______ 

A) 

Cooper and Cooper, LLC 

B) 

a taxi driver 

C) 

the owner of a local dry cleaner 

D) 

the United States Post Office 

12) 

A small law firm that is NOT registered as a limited liability company is likely to be a ________ or a ________. 

12) 

______ 

A) 

corporation; LLC 

B) 

proprietorship; corporation  

C) 

proprietorship; partnership 

D) 

partnership; corporation 

13) 

Which type of firm is subject to double-taxation? 

13) 

______ 

A) 

proprietorship 

B) 

limited liability company 

C) 

partnership 

D) 

corporation 

14) 

A ________ profits are taxed twice. 

14) 

______ 

A) 

corporation 

B) 

proprietorship 

C) 

limited liability company 

D) 

partnership 

15) 

Which of the following is an example of a corporation? 

15) 

______ 

A) 

a taxi driver 

B) 

Cooper and Cooper, LLC 

C) 

the United States Post Office 

D) 

Coca-Cola 

16) 

Owners of a ________ and a ________ both have limited liability. 

16) 

______ 

A) 

proprietorship; partnership 

B) 

corporation; proprietorship 

C) 

partnership; limited liability company 

D) 

limited liability company; corporation 

17) 

The government requires that each of the following types of firms register the firm except which one? 

17) 

______ 

A) 

limited liability company 

B) 

partnership 

C) 

proprietorship 

D) 

corporation 

18) 

In a ________, employees are motivated to become an owner. 

18) 

______ 

A) 

proprietorship 

B) 

corporation 

C) 

limited liability company 

D) 

partnership 

19) 

A ________ is typically run on a day-to-day basis by professional managers. 

19) 

______ 

A) 

partnership 

B) 

corporation 

C) 

proprietorship 

D) 

limited liability company 

20) 

A ________ is typically overseen by a board of directors. 

20) 

______ 

A) 

proprietorship 

B) 

corporation 

C) 

partnership 

D) 

limited liability company 

21) 

A ________ only exists for the life of the owner, while a ________ has perpetual life. 

21) 

______ 

A) 

corporation; proprietorship 

B) 

proprietorship; corporation 

C) 

proprietorship; limited liability company 

D) 

partnership; limited liability company 

22) 

If you want to establish and run your own business, but are very concerned about your liability should anything go wrong, which of the following would be the best kind of firm for you? 

22) 

______ 

A) 

limited liability company 

B) 

corporation 

C) 

partnership 

D) 

proprietorship 

23) 

In a corporation, board members ________. 

23) 

______ 

A) 

oversee the actions of managers 

B) 

only have their firm's profits taxed once 

C) 

typically run the corporation on a day-to-day basis 

D) 

face unlimited liability 

24) 

Which type of firm pays dividends? 

24) 

______ 

A) 

limited liability company 

B) 

corporation 

C) 

partnership 

D) 

proprietorship 

25) 

Which type of firm is legally required to setup a double-entry booking system to record its business transactions? 

25) 

______ 

A) 

partnership 

B) 

proprietorship 

C) 

limited liability company 

D) 

corporation 

26) 

Which type of firm is legally required file an annual report to their state government? 

26) 

______ 

A) 

limited liability company 

B) 

corporation 

C) 

proprietorship 

D) 

partnership 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

27) 

Regardless of their organizational structure, all firms convert inputs into outputs that can sell or distribute. 

27) 

______ 

28) 

Non-profit firms are the only type of firm that does not convert inputs into outputs that can be sold or distributed. 

28) 

______ 

29) 

A partnership can be owned by just one person. 

29) 

______ 

30) 

The dividend a corporation pays per share is determined by the corporation's board of directors. 

30) 

______ 

31) 

If a corporation fails, the shareholders are responsible for repaying all of the debt. 

31) 

______ 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

32) 

Total revenue is equal to 

32) 

______ 

A) 

price x quantity 

B) 

quantity x profit 

C) 

price x cost 

D) 

price x profit 

33) 

If Big Brothers Hot Dog stand sold 500 hot dogs at a price $2 per hot dog, the total revenue is 

33) 

______ 

A) 

$500 

B) 

$2 

C) 

$1,000 

D) 

$5,000 

34) 

All of the following can affect a firm's total revenue except which one? 

34) 

______ 

A) 

returns 

B) 

discounts 

C) 

accounting costs 

D) 

allowances 

35) 

All of the following can affect a firm's total revenue except which one? 

35) 

______ 

A) 

returns 

B) 

rebates 

C) 

discounts 

D) 

opportunity costs 

36) 

Which of the following can affect a firm's total revenue? 

36) 

______ 

A) 

opportunity costs 

B) 

implicit costs 

C) 

allowances 

D) 

explicit costs 

37) 

Weed Masters provides an annual lawn care service to its customers.  Weed Masters has 400 customers and charges $1,000 per annual lawn service.  The company offers an 8 percent discount if customers pay in full at the start of the season.  If every customer pays in full at the start of the season, Weed Masters' total revenue is ________. 

37) 

______ 

A) 

$368,000 

B) 

$375,000 

C) 

$400,000 

D) 

$323,000 

38) 

Weed Masters provides an annual lawn care service to its customers.  Weed Masters has 350 customers and charges $750 per annual lawn service.  The company offers a 4 percent discount if customers pay in full at the start of the season.  If every customer pays in full at the start of the season, Weed Masters' total revenue is ________. 

38) 

______ 

A) 

$262,500 

B) 

$10,500 

C) 

$252,000 

D) 

$15,500 

39) 

Weed Masters provides an annual lawn care service to its customers.  Weed Masters has 225 customers and charges $800 per annual lawn service.  The company offers a 5 percent discount if customers pay in full at the start of the season.  If every customer pays in full at the start of the season, Weed Masters' total revenue is ________. 

39) 

______ 

A) 

$12,000 

B) 

$180,000 

C) 

$9,000 

D) 

$171,000 

40) 

________ is an example of an implicit cost. 

40) 

______ 

A) 

The cost to transport a firm's goods 

B) 

A salary paid to an employee 

C) 

A firm's electric bill 

D) 

The wear and tear on a firm's machinery 

41) 

A cabinet firm paid $5,000 for 10,000 pieces of cabinet hardware.  The firm has used 4,000 pieces of hardware and is holding the remaining 6,000 pieces in inventory.  The current market price for the 6,000 pieces of hardware is $2,800.  What is the opportunity cost of holding the 6,000 pieces of hardware in inventory? 

41) 

______ 

A) 

$2,800 

B) 

$3,000 

C) 

$5,000 

D) 

$4,000 

42) 

A cabinet firm paid $5,000 for 10,000 pieces of cabinet hardware.  The firm has used 4,000 pieces of hardware and is holding the remaining 6,000 pieces in inventory.  The current market price for the 6,000 pieces of hardware is $2,800.  What is the sunk cost of purchasing the cabinet hardware? 

42) 

______ 

A) 

$3,000 

B) 

$5,000 

C) 

$4,000 

D) 

$2,800 

43) 

A florist paid $1,200 for 500 glass vases.  The florist has used 300 of the glass vases and is holding the remaining 200 vases in inventory.  The current market price for the 200 pieces of hardware is $600.  What is the opportunity cost of holding the 200 vases in inventory? 

43) 

______ 

A) 

$600 

B) 

$200 

C) 

$1,200 

D) 

$300 

44) 

A florist paid $1,200 for 500 glass vases.  The florist has used 300 of the glass vases and is holding the remaining 200 vases in inventory.  The current market price for the 200 pieces of hardware is $600.  What is the sunk cost of purchasing the vases? 

44) 

______ 

A) 

$600 

B) 

$1,200 

C) 

$200 

D) 

$300 

45) 

Big Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years.  After the first year of use, the market value of the dump truck falls to $70,000.  What is the straight-line depreciation of the dump truck? 

45) 

______ 

A) 

$12,500 

B) 

$87,500 

C) 

$70,000 

D) 

$30,000 

46) 

Big Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years.  After the first year of use, the market value of the dump truck falls to $70,000.  What is the economic depreciation of the dump truck? 

46) 

______ 

A) 

$12,500 

B) 

$70,000 

C) 

$87,500 

D) 

$30,000 

47) 

Big Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years.  After the first year of use, the market value of the dump truck falls to $70,000.  If the highest one-year return available is 10 percent, what is the one-year return from selling the dump truck? 

47) 

______ 

A) 

$60,000 

B) 

$7,000 

C) 

$70,000 

D) 

$10,000 

48) 

To start up a two-person partnership law firm, the partners each invest $125,000 of their own funds.  If the partners could have earned 5 percent return on these funds in another endeavor, what is their competitive return? 

48) 

______ 

A) 

$6,250 

B) 

$237,500 

C) 

$12,500 

D) 

$118,750 

49) 

Suppose you have recently graduated and have been offered a salary position at a reputable accounting firm of $125,000 (including all benefits) per year.  After much consideration, you turn down the offer to start your own accounting firm.  You pay yourself $75,000 (including all benefits) a year.  Which of the following represents the opportunity cost of your time? 

49) 

______ 

A) 

$125,000 

B) 

$100,000 

C) 

$75,000 

D) 

$50,000 

50) 

Suppose you have recently graduated and have been offered a salary position at a reputable accounting firm of $125,000 (including all benefits) per year.  After much consideration, you turn down the offer to start your own accounting firm.  You pay yourself $75,000 (including all benefits) a year.  Which of the following represents the explicit opportunity cost of your time? 

50) 

______ 

A) 

$100,000 

B) 

$125,000 

C) 

$50,000 

D) 

$75,000 

51) 

Suppose you have recently graduated and have been offered a salary position at a reputable accounting firm of $125,000 (including all benefits) per year.  After much consideration, you turn down the offer to start your own accounting firm.  You pay yourself $75,000 (including all benefits) a year.  Which of the following represents the implicit opportunity cost of your time? 

51) 

______ 

A) 

$50,000 

B) 

$100,000 

C) 

$75,000 

D) 

$125,000 

Profit Using Accounting Costs                           Profit Using Opportunity Costs
Total Revenue	$700,000  	Total Revenue	$700,000  	
Cost		Cost		
     Nail technicians	A	     Nail technicians	A	
     Owner's Salary	B	     Owner's Time	C	
     Depreciation Allowance	D	     Cost of using building and equipment
     (opportunity cost)	$25,000  	
				
Total Cost		Total Cost		
Total Profit	E	Total Profit	F	

Happy Nails is a locally owned nail salon that is in its first year of business.  The nail salon employs 8 nail technicians that are paid $31,250 each and the owner's is paid $75,000.  If the owner did not own Happy Nails, she would work for a competitor for $85,000.  At the beginning of the year, the building and the salon equipment are worth $100,000 and at the end of the year, they are worth $85,000.  The accountant for Happy Nails uses straight-line depreciation for the 15-year life of the building and salon equipment.  The table above provides some additional information on revenue and the opportunity cost of using the building and equipment.

52) 

Refer to the table above.  What is the value of A? 

52) 

______ 

A) 

$62,500 

B) 

$312,500 

C) 

$31,250 

D) 

$250,000 

53) 

Refer to the table above.  What is the value of B? 

53) 

______ 

A) 

$85,000 

B) 

$100,000 

C) 

$75,000 

D) 

$31,250 

54) 

Refer to the table above.  What is the value of C? 

54) 

______ 

A) 

$31,250 

B) 

$85,000 

C) 

$100,000 

D) 

$75,000 

55) 

Refer to the table above.  What is the value of D? 

55) 

______ 

A) 

$5,666.67 

B) 

$4,250 

C) 

$5,000 

D) 

$6,666.67 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

56) 

Refer to the table above.  The value of E is greater than the value of F. 

56) 

______ 

57) 

Competition from profit-maximizing firms will drive firms that are not maximizing profits out of business. 

57) 

______ 

58) 

Both accounting cost and opportunity costs include explicit and implicit costs. 

58) 

______ 

59) 

Effective profit-maximizing managers work hard to minimize sunk costs. 

59) 

______ 

60) 

Managers should use straight-line depreciation when making decisions. 

60) 

______ 

61) 

Opportunity cost is a better measure of the true costs faced by firms than accounting costs. 

61) 

______ 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

62) 

If the marginal ________ of an action exceeds its marginal ________ then the action ________ be performed. 

62) 

______ 

A) 

benefit; cost; should 

B) 

benefit; cost; should not 

C) 

cost; benefit; should 

D) 

none of the above 

63) 

At the 30th unit of action, the marginal benefit is equal to $50 and the marginal cost is equal to $40.  Which of the following is true? 

63) 

______ 

A) 

The 30th unit of action minimizes total costs. 

B) 

The 30th unit of action should not be undertaken. 

C) 

The 30th unit of action maximizes total gains (total profits). 

D) 

The 30th unit of action should be undertaken. 

64) 

At the 50th unit of action, the marginal benefit is equal to $20 and the marginal cost is equal to $25.  Which of the following is true? 

64) 

______ 

A) 

The 50th unit of action minimizes total costs. 

B) 

The 50th unit of action should be undertaken. 

C) 

The 50th unit of action maximizes total gains (total profits). 

D) 

The 50th unit of action should not be undertaken. 

65) 

To maximize total profit, managers want to produce the quantity in which marginal benefit ________ marginal cost. 

65) 

______ 

A) 

is equal to 

B) 

maximizes 

C) 

minimizes 

D) 

exceeds 

66) 

To maximize total profit, managers want to produce the quantity in which marginal cost ________ marginal benefit. 

66) 

______ 

A) 

maximizes 

B) 

is equal to 

C) 

exceeds 

D) 

minimizes 

67) 

If the marginal benefit curve is linear and downward sloping and the marginal cost curve is linear and upward sloping, an increase in the marginal cost that causes an upward shift of the curve will ________ the profit-maximizing number of units undertaken. 

67) 

______ 

A) 

not change 

B) 

decrease 

C) 

exactly double 

D) 

increase 

68) 

If the marginal benefit curve is linear and downward sloping and the marginal cost curve is linear and upward sloping, a decrease in the marginal cost that causes a downward shift of the curve will ________ the profit-maximizing number of units undertaken. 

68) 

______ 

A) 

decrease 

B) 

not change 

C) 

increase 

D) 

reduce by exactly half 

 

69) 

Refer to the figure above.  At the 10th unit of action, which of the following is true? 

69) 

______ 

A) 

Marginal cost exceeds marginal benefit. 

B) 

Total gains are maximized. 

C) 

Marginal benefit exceeds marginal cost. 

D) 

Total losses are minimized. 

70) 

Refer to the figure above.  At the 20th unit of action, which of the following is true? 

70) 

______ 

A) 

Total losses are minimized. 

B) 

Marginal benefit exceeds marginal cost. 

C) 

Marginal cost exceeds marginal benefit. 

D) 

Total gains are maximized. 

71) 

Refer to the figure above.  At the 40th unit of action, which of the following is true? 

71) 

______ 

A) 

Marginal benefit exceeds marginal cost. 

B) 

Marginal cost exceeds marginal benefit. 

C) 

Total gains are maximized. 

D) 

Total losses are minimized. 

72) 

Refer to the figure above.  At the 50th unit of action, which of the following is true? 

72) 

______ 

A) 

Marginal cost exceeds marginal benefit. 

B) 

Marginal benefit exceeds marginal cost. 

C) 

Total gains are maximized. 

D) 

Total losses are minimized. 

73) 

Refer to the figure above.  Undertaking the 10th unit of action, yields a surplus of benefit of ________. 

73) 

______ 

A) 

$20 

B) 

$60 

C) 

$80 

D) 

$40 

74) 

Refer to the figure above.  Undertaking the 20th unit of action, yields a surplus of benefit of ________. 

74) 

______ 

A) 

$50 

B) 

$60 

C) 

$20 

D) 

$30 

75) 

Refer to the figure above.  Which unit of action maximizes total gains (total profits)? 

75) 

______ 

A) 

40 

B) 

20 

C) 

10 

D) 

30 

76) 

Refer to the figure above.  Undertaking the 30th unit of action, yields a surplus of benefit of ________. 

76) 

______ 

A) 

$30 

B) 

$20 

C) 

$10 

D) 

$0 

77) 

Refer to the figure above.  An increase in the marginal cost that causes an upward shift of the curve will cause the profit-maximizing number of units undertaken to ________. 

77) 

______ 

A) 

decrease 

B) 

equal 40 

C) 

equal 50 

D) 

increase 

 

78) 

Refer to the figure above.  At the 20th unit of action, which of the following is true? 

78) 

______ 

A) 

Total gains are maximized. 

B) 

Marginal benefit exceeds marginal cost. 

C) 

Marginal cost exceeds marginal benefit. 

D) 

Total losses are minimized. 

79) 

Refer to the figure above.  At the 30th unit of action, which of the following is true? 

79) 

______ 

A) 

Marginal benefit exceeds marginal cost. 

B) 

Total gains are maximized. 

C) 

Total losses are minimized. 

D) 

Marginal cost exceeds marginal benefit. 

80) 

Refer to the figure above.  At the 50th unit of action, which of the following is true? 

80) 

______ 

A) 

Total gains are maximized. 

B) 

Total losses are minimized. 

C) 

Marginal cost exceeds marginal benefit. 

D) 

Marginal benefit exceeds marginal cost. 

81) 

Refer to the figure above.  At the 70th unit of action, which of the following is true? 

81) 

______ 

A) 

Total losses are minimized. 

B) 

Total gains are maximized. 

C) 

Marginal benefit exceeds marginal cost. 

D) 

Marginal cost exceeds marginal benefit. 

82) 

Refer to the figure above.  Undertaking the 20th unit of action, yields a surplus of benefit of ________. 

82) 

______ 

A) 

$40 

B) 

$80 

C) 

$20 

D) 

$60 

83) 

Refer to the figure above.  Undertaking the 30th unit of action, yields a surplus of benefit of ________. 

83) 

______ 

A) 

$70 

B) 

$20 

C) 

$50 

D) 

$30 

84) 

Refer to the figure above.  Which unit of action maximizes total gains (total profits)? 

84) 

______ 

A) 

40 

B) 

30 

C) 

50 

D) 

20 

85) 

Refer to the figure above.  Undertaking the 40th unit of action, yields a surplus of benefit of ________. 

85) 

______ 

A) 

$0 

B) 

$30 

C) 

$20 

D) 

$10 

86) 

Refer to the figure above.  An increase in the marginal cost that causes an upward shift of the curve will cause the profit-maximizing number of units undertaken to ________. 

86) 

______ 

A) 

decrease 

B) 

equal 50 

C) 

increase 

D) 

equal 40 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

87) 

Marginal analysis is the comparison of the total benefit of an action compared to its total cost. 

87) 

______ 

88) 

All actions in which the marginal benefit exceeds the marginal cost should be undertaken. 

88) 

______ 

89) 

All actions in which the marginal cost exceeds the marginal benefit should be undertaken. 

89) 

______ 

90) 

Total profit is maximized when marginal benefit equals marginal cost. 

90) 

______ 

91) 

Total profit is maximized as long as marginal benefit exceeds marginal cost. 

91) 

______ 

 

1) 

2) 

B 

3) 

C 

4) 

C 

5) 

B 

6) 

B 

7) 

C 

8) 

D 

9) 

A 

10) 

A 

11) 

A 

12) 

C 

13) 

D 

14) 

A 

15) 

D 

16) 

D 

17) 

C 

18) 

D 

19) 

B 

20) 

B 

21) 

B 

22) 

A 

23) 

A 

24) 

B 

25) 

D 

26) 

B 

27) 

TRUE 

28) 

FALSE 

29) 

FALSE 

30) 

TRUE 

31) 

FALSE 

32) 

A 

33) 

C 

34) 

C 

35) 

D 

36) 

C 

37) 

A 

38) 

C 

39) 

D 

40) 

D 

41) 

A 

42) 

B 

43) 

A 

44) 

B 

45) 

A 

46) 

D 

47) 

B 

48) 

C 

49) 

A 

50) 

D 

51) 

A 

52) 

D 

53) 

C 

54) 

B 

55) 

D 

56) 

TRUE 

57) 

TRUE 

58) 

TRUE 

59) 

FALSE 

60) 

TRUE 

61) 

TRUE 

62) 

A 

63) 

D 

64) 

D 

65) 

A 

66) 

B 

67) 

B 

68) 

C 

69) 

C 

70) 

B 

71) 

B 

72) 

A 

73) 

D 

74) 

C 

75) 

D 

76) 

D 

77) 

A 

78) 

B 

79) 

A 

80) 

C 

81) 

D 

82) 

A 

83) 

B 

84) 

A 

85) 

A 

86) 

A 

87) 

FALSE 

88) 

TRUE 

89) 

FALSE 

90) 

TRUE 

91) 

FALSE